Strong Dollar Curtails Further Upside Move in Gold

Although investors and traders are bidding up both gold and silver today, in the case of gold, the strong dollar is greater than the net positive gain attributed to buying. As of 3:15 EDT, spot gold is currently trading down -$1.40 on the day. However, on closer inspection, a strong U.S. dollar is devaluing an ounce of gold by -$7.60. Traders and investors are bidding up the precious yellow metal by +$6.20, not enough to compensate for today’s dollar strength.

Many analysts are citing profit-taking as a primary cause for today’s lower pricing. However, it is dollar strength which is directly attributable to strong economic data that came out today. Today’s ADP national employment report numbers were solid, coming in at 237,000 jobs added. This figure was well above initial estimates of 185,000 jobs added.

Another solid indicator that the U.S. economy has been building steam was the second revision of second quarter GDP, which came in at a respectable 3%, slightly above economists forecast of 2.8%. This is the first occurrence of a 3% GDP in two years and certainly indicates that the U.S. economy is growing.

This solid economic data resulted in a moderate dollar bounce of 0.7% on the day. The dollar index is currently trading at 92.82, off the recent lows achieved at 91.50.

Geopolitical tension has been ratcheting up with North Korea’s most recent action in which it fired a missile over Japan. Such a blatant action by the North Korean government has definitively increased tension in the region, and gold as a safe haven asset has been holding steady in its price. Market participants are awaiting the global reaction, which is currently focused upon United Nation sanctions against North Korea.

However, sanctions imposed by the United Nations in the past have had only a tepid effect as North Korea has repeatedly sidestepped the sanctions through a process of nefarious networks. The net result is that previous sanctions have not had real teeth or power in slowing down North Korea’s desire to become a nuclear power.

Gold prices have indeed softened after reaching 1330 per ounce earlier this week. At the same time, it must be noted that gold’s former price resistance at $1300 has now become support.

Wishing you as always, good trading,